ConocoPhillips vs. Devon Energy: Which Is Better for You?

ConocoPhillips and Devon Energy are both highly profitable and operate in some of same onshore fields. But there are some differences between them that could help determine which one is right for you.

Jun 6, 2014 at 10:56AM

Among the independent exploration and production majors, ConocoPhillips (NYSE:COP) and Devon Energy (NYSE:DVN) share a number of similarities. Both explore for undiscovered oil and natural gas reserves, and both purchase and develop those resources. They even hold similar geographic areas of focus. Both companies are heavily involved in production from some of the premier onshore regions in the United States, such as the Eagle Ford shale and the Permian Basin.

At the same time, you should know that there are some differences between the two. For one, ConocoPhillips is a more diversified company operationally. It's more evenly spread across both domestic and international plays, while Devon is a pure-play North American producer.

In addition, they hold different shareholder policies. ConocoPhillips is focused on returning a greater amount of cash flow to investors, which does more for you in the short term. Devon Energy, meanwhile, is more growth oriented—meaning it has more ambitious production plans which it hopes will allow for greater cash returns to shareholders down the road.

With all this in mind, here are some of the differences between ConocoPhillips and Devon Energy that can help you make a more informed decision if you're considering making an investment.

Devon gets domesticated
Devon Energy has undertaken a significant business restructuring over the past year, designed to shed under-performing assets outside the United States. Devon has raised a lot of cash that it can now plow back into promising domestic oil and gas fields. As the American oil and gas boom continues, Devon is making sure it isn't missing out.

For example, Devon recently closed on a large sale of its Canadian assets. It's unloading $2.7 billion worth of conventional oil assets and will use the proceeds to help finance its purchase of separate assets in the Eagle Ford shale. Last year, Devon bought $6 billion worth of assets at Eagle Ford from a privately held company.

The benefits from this domestication strategy are plain to see. Devon now generates the bulk of its production from the United States. For example, almost half of Devon's oil production will come from the U.S. this year. This trend will accelerate next year as its restructuring gains traction. Devon will generate almost two-thirds of its oil production next year from the U.S.

And, on an absolute basis, Devon's production is set to soar. The company expects total U.S. and Canadian oil production to rise 30% next year, driven by a 70% jump in domestic oil production.

ConocoPhillips has more modest production goals in mind. This has a lot to do with the inevitable law of large numbers. ConocoPhillips is a nearly $100 billion company by market capitalization. It's more than three times larger than Devon. As a result, it has a tougher time finding large enough projects to move the needle in a significant way.

That's why ConocoPhillips holds a long-term production growth target of 3%-5% compounded annually. It's more spread across international geographies and in product mix, which provides it more stable (albeit slower) growth. For instance, 24% of the company's first-quarter production came from North American gas. Another 18% came from international production and liquefied natural gas, with the remaining 58% coming from liquids.

ConocoPhillips' larger size and scale allow it to maintain a more impressive dividend than Devon. Whereas Devon yields only 1.3%, ConocoPhillips offers a 3.5% dividend yield. To be fair, though, Devon's higher growth allows for more rapid growth in its distribution. Devon just raised its dividend 9%, while ConocoPhillips' last dividend increase was about half that.

Growth now or later?
Both ConocoPhillips and Devon Energy are highly profitable companies engaged in exploration and production. The key difference that separates the two is where they are in their stages of maturity. ConocoPhillips is much larger than Devon, and its operations are spread further across different geographies. Its size and scale offers more stability, but Devon has a better growth profile.

The bottom line is that if you're a more risk-averse investor and you want a greater dividend yield, go with ConocoPhillips. On the other hand, if you're willing to take a little more risk, Devon has the potential for greater long-term growth.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Bob Ciura has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information